PENSIONS
the risk of over-saving. The potential policy measures include but aren’t limited to the following: l keeping and / or lowering (rather than fully removing) the £10,000 trigger for some low earners l creating other short- or longer-term savings options, such as emergency or ‘rainy day’ savings l providing family or carer top-ups through the welfare regime l implementing temporary opt-down, rather than only opt-out options for contributions l other measures specifically tailored to hourly-paid workers who might also benefit from wider financial resilience measures such as through automatic saving. We’ve been consulting with industry, stakeholders, consumer groups and other representative bodies on a set of policy proposals put forward in October last year, ‘ Five Steps to Better Pensions’. We’ll also be publishing a further set of recommendations on how to improve pension outcomes in the autumn. Further research on low earners, the needs of under-pensioned workers more generally and the intersectionality of different characteristics are needed before a final decision can be made on whether to amend the current £10,000 earnings threshold. In the meantime, we look forward to the speedy introduction of a separate reform of the AE regime – the introduction of pension savings from the first pound of earnings from those who already meet the criteria for AE. And beyond that, the PLSA continues to call for the gradual increase of AE saving from the current level of 8% up to around 12%, starting at some point in the later 2020s and finishing in the early 2030s. We think we should move to a 50/50 split, so employers pay the same as their employees. If the UK doesn’t increase its pension saving, many more people will fail to have the pension income they’ve hoped for and be left with no choice but to keep working late into their 60s. n
Retirement income benefit for nearly three million Separately, the research considered how much the inclusion of people earning less than £10,000 per year might benefit them in terms of retirement income. The findings indicate that removing the AE trigger for individuals earning less than £10,000 could have a potential positive impact of between 7-13% on retirement outcomes. Future policy implications So, these are interesting findings which suggest that not all those earning less than £10,000 per year would be unable to afford to save for a pension under AE, and that many of them might actually benefit to a reasonable degree. But the conclusions don’t necessarily mean it’s desirable to include this group of low earners in AE. More analysis is needed, especially as to the impact on their current expenditure and whether it might put them at risk of over-saving. Also, if it were decided to bring this group within AE, it might be necessary to amend the design of AE in some way to reduce
removing the £10,000 earnings trigger, so that people earning below this threshold could automatically begin contributing to a pension, would cause harm by squeezing their current income and living standards. It also sought to explore whether better understanding the profile of this group would present opportunities to mitigate this risk through policy interventions. To arrive at a figure for the number of low earners who could be ‘at risk’, certain groups were identified as having a reasonable mitigating factor reducing their risk of detriment. For instance, if an individual was already paying into a pension, they were already used to making those financial contributions. Another example of those less at risk were people on a low income who lived in a household where another person (perhaps a partner or spouse) earns more. After removing those groups deemed at a lower risk, the research found an estimated 300,000 people, out of 3.17 million total lower earners, who could be at a higher risk of financial detriment if brought within the scope of AE.
John Upton, policy analyst at the PPI, said: “Our modelling demonstrates that nine in ten low earners have some mitigating circumstance that would mean that, if they were to be automatically enrolled, their living standard is unlikely to be reduced below an adequate level. These mitigating circumstances could be things like living in a household with a high overall income, expecting higher earnings after graduating university, being already enrolled anyway or being ineligible for AE for other reasons. As AE policy is further developed, it is worth considering whether levers can be introduced which ensure greater involvement of low earners who will not be disadvantaged by saving. With low earners being such a complex group, this is no mean feat. However, AE has been one of the greatest success stories of pensions policy in recent history, and to include more of the right people in it would be a worthwhile achievement.”
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| Professional in Payroll, Pensions and Reward |
Issue 94 | October 2023
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